Case Law Details
Vishal Metallics Private Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)
Principle of ‘user test’ also need to be considered while deciding the entitlement of assessee to avail CENVAT Credit as laid down by the Hon’ble Supreme Court in the case of CCE Vs. Rajasthan Spinning & Weaving Mills Limited 2010 (255) ELT 481 (SC).
It is not in dispute that various steel items have been used for the purpose of setting up of Sponge Iron Plant for manufacture of final products. Therefore, by applying the “user test” principle, the Appellant is entitled to avail credit on the steel items.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The instant Appeal has been filed by the Appellant against Order-in-Appeal dated 30.11.2017 passed by the Ld. Commissioner (Appeal), Bhubaneswar.
2.1 Brief facts of the case are that the Appellant is engaged in the manufacture of Sponge Iron.For setting up of their Sponge Iron Plant they purchased 145.035 MT of Iron and Steel Materials like H.R. Plates, M.S. Plate, Flats, Beams, Channel, Chequered Coil, Angel etc. during April 2008 to March 2009 and claimed CENVAT Credit of Rs.5,51,616/-. The impugned Iron & Steel materials are used for manufacture of Base Frame & other ABC equipments, Base Frame for Kiln outlet & Transfer Chute, Kiln Maintenance Platform, Conveyor Gallery, Head & Tail Pully Frame, Conveyor Tustle& Gravity Take-up, Feeding & Discharge and Bag Fitter.
2.2 After EA2000 Audit, the Audit observation dated 01.02.2010 was issued. The Audit Team again visited the factory premises of the Appellant on 07.01.2011 for conducting physical verification for ascertaining the end use of the impugned goods as claimed by the Appellant. The Audit Team vide their Physical Verification report dated 07.01.2011 observed that the emergent goods are Base Frame & other ABC equipments, Base Frame for Kiln outlet & Transfer chute, Kiln Maintenance Platform, Conveyor Gallery, Head & Tail Pully Frame, Conveyor Tustle & Gravity Take up, Feeding & Discharge and Bag Fitter.
2.3 Prior to adjudication the Ld. Additional Commissioner directed the Jurisdictional Range Superintendent for a Joint verification of emergent goods along with a qualified Chartered Engineer which was conducted on 14.06.2013. As per the Joint Verification Report dated 15.06.2013 all the emergent goods are specified capital goods or spares, components or accessories thereof.
2.4 The Show Cause Notice dated 25.07.2012 was issued inter alia alleging that the Appellant had availed irregular and inadmissible CENVAT Credit of Rs.5,51,616/- during the period April,2008 to March,2009 on the Iron and Steel materials which are purportedly utilized for manufacture of ‘supporting structures’. The Ld. Additional Commissioner contrary to the physical verification/Joint verification report vide adjudication order/Order-in-Original dated 29.03.2016, disallowed CENVAT Credit of Rs.2,57,349/- on 69.205 MT of Iron and Steel materials on the ground that the emergent goods are support structures’. However the Ld. Additional Commissioner partially allowed CENVAT Credit of Rs.2,94,267/- on 75.930 MT of Iron and Steel materials. On appeal, the Ld.Commissioner(Appeals)upheld the adjudication order and rejected the Appeal before him. Hence the present Appeal before the Tribunal.
3. The Ld.Advocate, appearing on behalf of the Appellant, has submitted that the finding of the Ld. Commissioner (Appeals) disallowing CENVAT Credit is perverse. In the instant case, both the lower authorities haveseriously erred in holding Base Frames, Maintenance Platforms, etc as supporting structures whereas the Joint Verification report clearly states that the same as spares, components and accessories of Capital Goods which were structures only.
4. Authorized Representative for the Department justifies the impugned order and submits that the Appeal filed by the Appeal be dismissed being devoid of merits.
5. Heard both sides and perused the appeal records.
6. The Ld. Advocate for the Appellant made extensive arguments to support his case and also submitted detailed written submissions. He submitted that the Appellant has duly furnished the utilisation statement showing their usage of steel items to manufacture various goods which become integral part of the plant to manufacture the final product. He relied on various decisions of the Hon’ble High Court to support the credit entitlement on the principles of ‘user test’. He also submitted that the Ld. Commissioner (Appeals) has completely ignored the utilisation statement and has merely relied on the decision of the Tribunal’s Larger Bench in the case of Vandana Global (Supra) which decision has already been set aside by the Hon’ble Chhattisgarh High Court.
7. I find that the Tribunal in the case of CCE Vs. Jindal Steels & Power Ltd., reported in 2015 (330) ELT 708 (Tri.-Del.) while holding Crane Girder, Crane Rail, Crane Column, Crane Surg Girder, Base Frame of various production machineries as ‘accessories’ and allowed CENVAT Credit on the Iron & Steel Materials used in the manufacture thereof.
8. The Hon’ble Madras High Court in the case of CCE Vs. Madras Aluminium Co. reported in 2017(349) ELT 133 (Mad.) held that the technological structures/support structures manufactured out of Iron and Steel materials squarely falls within the meaning of ‘accessory’ under Rule 2(a) and therefore CENVAT Credit claimed in such Iron and Steel materials cannot be denied.
9. Further, Hon’ble Madras High Court in the case of Thiru Arooran Sugars and Ors Vs. CCE reported in 2017-TIOL-1357-HC-MAD-CX while impliedly overruling the decision of Larger Bench of this Tribunal in Vandana Global Ltd. held that even after 07.07.2009 explanation brought in by the said Notification dated 07.07.2009 CENVAT Credit on Iron and Steel materials, Cement etc used for making of support structures, construction of foundation etc cannot be denied as ‘inputs’ in terms of main limb of Rule 2(k) so long as items fulfill criteria of ‘used in or in relation of manufacture of final products, whether directly or indirectly’.
10. The said amendment is made effective w.e.f. 07.07.2009 and therefore it cannot be retrospective in nature. The Hon’ble High Court of Gujarat in the case of Mundra Ports and Special Economic Zone Ltd Vs. CCE Reported in (2015) 39 STR 726 (Guj.) has held that Notification dated 07.07.2009 is prospective in nature and decision of Larger Bench of the Tribunal in the case of Vandana Global Ltd., is not correct law. The Hon’ble Supreme Court in the case of CCE Vs. Rajasthan Spinning & Weaving Mills Ltd., reported in 2010 (255) E.L.T. 481 (S.C.) has held that whether an item falls within the purview of ‘Capital Goods’ would depend upon the user test it is put to. It is further held that any item without which the capital goods cannot be put to intended use has to be treated as ‘accessory’.
11. In the instant case the dispute relates to the period from April, 2008 to March, 2009 whereas the Show Cause Notice is issued on dated 25.07.2012 i.e. beyond normal period of limitation of one year. Therefore, as per Section 11Aof the Central Excise Act, 1944 the entire demand is barred by normal period of limitation. Hence, extended period of limitation cannot be invoked in the instant case in as much as none of the ingredients necessary for invoking extended period under proviso to Section 11A (1) exists.
12. In the facts and circumstances of the case there is no warrant in levying any penalty upon the Appellant. During the material period the position of law was not settled and there were divergent views expressed by the Courts / Tribunals leading to referral of the matter to Larger Bench in the case of Vandana Global Ltd., Vs. CCE cited (supra).
13. I find that the Hon’ble Chhattisgarh High Court has set aside the decision of the Tribunal’s Larger Bench in the case of Vandana Global as reported in 2018 (16) GSTL 462 (Chhattisgarh). I further observe that the principle of “user test” also need to be considered while deciding the entitlement of assessee to avail CENVAT Credit as laid down by the Hon’ble Supreme Court in the case of CCE Vs. Rajasthan Spinning & Weaving Mills Limited 2010 (255) ELT 481 (SC). Following the said decision, the Hon’ble Madras High Court in the case of Thiru Arooran Sugars, has held that iron and steel items and cement used for erection of foundation and support structures would also come within the ambit of the definition of “input” so long as it satisfies the “user test”. The operative portion of the decision of the Hon’ble Madras High Court is reproduced below:-
“..43. As would be evident from the aforesaid extract, in Rajasthan Spinning & Weaving Mills Limited case, the Court relied upon the user test, enunciated, in its earlier judgment rendered in :Jawahar Mills Limited case. Clearly, the Court held that steel plates and MS Plates, i.e., structurals used in the fabrication of the chimney, which were an integral part of the diesel generating set would fall within the ambit and scope of definition of capital goods. The Court, went on to further hold that such equipment had to be treated as an accessory. As a matter of fact, in Saraswathi Sugar Mills case, the Court, while noticing the view taken in Rajasthan Spinning and Weaving Mills Limited said that as long as it could be shown that the item in issue was an integral part of the machinery, i.e., capital goods, it would fall in the definition of ‘component’ and thus, by logical extension, come within the ambit of ‘capital goods’. Ex..Appeal No.76940/19 4
43.1 To be noted, Hon’ble Mr. Justice D.K. Jain, (as he then was), was party to both the judgments rendered by the Supreme Court i.e., Rajasthan Spinning and Weaving Mills Limited as well as Saraswathi Sugar Mills Limited case.
43.2 Therefore, quite clearly, the two judgments referred to above cannot be read in the manner, as the Revenue is seeking to read them, that is, at cross purposes. In our opinion, the ratio of the two judgments, is that, as long as it is shown that the “component” and/or “accessory” is an integral part of the capital goods, (which, in turn, fall within the scope and ambit of the expression ‘capital goods’, referred to in Rule 2(a)(A)(i) of the 2004 Rules,) they would also qualify as capital goods.
44. In the facts of this case, we have to conclude that MS structurals, which support the plant and machinery, which are, in turn, used in the manufacture of sugar and molasses are an integral part of such plant and machinery. The assessee has clearly demonstrated that structurals as well as foundations, which are erected by using steel and cement are integral part of the capital goods (i.e., plant and machinery), as they hold in position the plant and machinery, which manufactures the final product. Therefore, in our opinion, whether the “user test” is applied, or the test that they are the integral part of the capital goods is applied, the assessees, in these cases, should get the benefit of Cenvat credit, as they fall within the scope and ambit of both Rule 2(a)(A) and 2(k) of the 2004 Rules.
45. For the foregoing reasons, we answer the questions, in all the three (3) appeals, which are set forth above, in favour of the assessees and against the Revenue.
46. Accordingly, the captioned appeals are allowed and the impugned judgments of the Tribunal, in each of these appeals, are set aside. However, there shall be no order as to costs.”
14. In the facts of the present case, it is not in dispute that various steel items have been used for the purpose of setting up of Sponge Iron Plant for manufacture of final products. Therefore, by applying the “user test” principle, the Appellant is entitled to avail credit on the steel items.
15. In view of the above discussions, I am of the view that the Appellant is entitled to avail credit and therefore, the Appeal filed by the Appellant is allowed with consequential relief, as per law.
(Order pronounced in the open court on 01 November 2022.)
